Return Window Decision in A Distribution Channel

Buqing Ma · Chenchen Di · Lu Hsiao

53 citations0/0 files storedProduction and Operations Management

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Supply Chain and Inventory Management Consumer Market Behavior and Pricing Sustainable Supply Chain Management

Abstract

This study investigates a firm's return window decision in a distribution channel. Conventional wisdom posits that compared to a centralized channel, a decentralized channel induces worse services (e.g., a shorter return window) because of double marginalization. We build a model consisting of one manufacturer, one retailer, and consumers who are heterogeneous in their willingness‐to‐pay (WTP) for product quality. Counterintuitively, we find that the return window can be longer in a decentralized channel than in a centralized channel. Furthermore, the return window can decrease along with product quality, which means that high‐quality products can be offered shorter return windows than low‐quality products. When endogenizing product quality, we reveal, contrary to previous findings, that the product quality in a decentralized channel may be higher, even when consumer heterogeneity in product quality follows a uniform distribution. This higher product quality induces a decentralized channel to generate a consumer surplus higher than that of a centralized channel.

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References

1983Managing Channel Profits 1985Optimal Pricing and Return Policies for Perishable Commodities 2008Optimal Pricing and Return Policies for Perishable Commodities 1997Manufacturer's Return Policies and Retail Competition 2008Consumer Returns Policies and Supply Chain Performance 1995Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs 2006Time Value of Commercial Product Returns 2005Channel Coordination in the Presence of a Dominant Retailer

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